Hacker News Reader

Comment by arthurcolle | Hacker News Reader

Thank god we have crypto & NFTs to help people use all this free cash

Actually, that's a good point. Inflation would be even worse if that cash was going into physical goods and services. The government now has an incentive to leave crypto alone aside from providing clarity.

In the macro economic sense, fiat money isn't 'used up' or 'locked away' when you buy something like crypto, it's transferred from your account to someone else's bank account. Worse, it goes through the process of fractional reserve banking and multiplies about ~10x after changing hands repeatedly.

There's no such thing as fractional reserve banking. It's an urban myth that has been debunked by QE for over a decade. Lord only knows why people still believe it.

Banks create money on demand by discounting collateral. Government creates money on demand by discounting the power to tax.

Fiat money disappears by the drain to taxation, to repaying loans and to 'rainy day funds'.

This is easily verified as nonsense.

Fractional reserve banking absolutely exists.

QE is so thinly related I can hardly imagine how you could contort it to have "disproved" something which is codified in law and taught in basic finance and economics courses.

Is it.

The reserve ratio in the UK and Canada is zero. Which means we should have infinite money in the banking system according to your beliefs.

Yet demonstrably we do not.

You have the line of causality backward, as the Bank of England helpfully explains in detail here: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

1) It appears to me that the document you provided actually refutes what you are saying. It supports fractional reserve banking. Here is a quote from the conclusion: "Most of the money in circulation is created, not by the printing presses of the Bank of England, but by the commercial banks themselves: banks create money whenever they lend to someone in the economy or buy an asset from consumers. "

2) "infinite money" without a legal limit to reserve ratios would only occur if every single bank actually had exactly 0% reserves, and it would take infinite time and infinite transactions for that to occur.

FYI using the observed absence of 'infinity' as a proof is generally poor logic as there is lots of mechanisms blocking infinity from occurring in reality.

Queen Elizabeth?

Quantitative Easing

That would be HMQ.

Minus all the fees to the crypto miners, which end up wasting many hours of labor and causing pollution.

That money will eventually be used again but it's worse than paying someone to dig and fill a hole.

That's correct. However, investing in Crypto using dollars will inflate the dollar. Thus, the arguments that the government will probably leave crypto alone, still holds.

Not necessarily if the money goes to just a few person though.

But if someone with money to spend transfers it to a crypto scammers account rather than buying say a car, that avoids inflationary pressure on car prices.

The trickiest question in business that noone seems to get right:

Q: How much money flows into "X" market? A: None, money flows THROUGH markets.

Although if you have X in circulation as money, and Y in stock market valuation, you could say Y/(X+Y) of total value is in the stock market.

If the market valuation goes up to Y+Z, you could say money has "entered" the stock market, pushing its share of value to (Y+Z)/(X+Y+Z) even though the money in circulation, X, could be unchanged.

Not sure about that. Money velocity went down a lot. If you pay Apple money, Apple – the company – keeps that money as cash reserves in some form or another. This might be reinvested and circulates a bit more, but is it really spend in the real economy so that average Joe benefits from this?

Discussion is around the stock market.

Yes, when you buy newly issued shares from Apple (rare), cash flows through the stock market into Apple's accounts, but again, no money went 'into' the stock market.

If you're talking about Apple selling devices, then it's another concept entirely.

Yes, although you could argue that money that was transferred from a checking account to a brokerage account has « flowed into » a market, at least for the time it takes to settle any trades and for the counter party to withdraw theirs (since it will not be used for consumption)

Lol you’re giving me an opportunity to be snarky and I will not turn it down. :)

Yes, when an item goes through something, it is briefly inside of that thing. I agree.

First sentence absolutely correct, second sentence absolute garbage.

That is an interesting justification for leaving crypto alone.

“Well if those poor people weren’t gambling on that ponzi scheme for a new dog coin they would actually be materially improving their living conditions and prices for everyone else would go up”

It’s interesting to see the wealth transfer of all these people that usually buy weekly lotto tickets get crypto instead and send their 10s of millions to programmers making an ICO and a fancy website.

I mean what percentage of all money being spent is being spent on cryptocurrency stuff? Surely that’s gotta be approximately 0%.

Don't know if percentage of money being spent is a good metric, but Bitcoin is 92.45% the market cap of silver, and 11% the market cap of gold.

Percentage of money spent ought to be significant if the claim is that demand for crypto is meaningfully substituting for demand for physical goods.

until the bubble bursts and bankrupts shittons of people causing bank runoffs and failures...like in 1929 and 2008...

Banks don't have any significant portion of their assets in crypto, so no.

Banks don't need to be. If half their customers declare bankruptcy or default on their mortgages, loans, etc; The bank won't have enough liquid assets to take on the subprime loans.

It doesn’t work like that though. If I buy BTC at 60k then someone is selling BTC at the same price. The fiat is just moving from one account to the next. The people getting cash-rich from crypto are either spending it (on lambos) or putting it back into the stock market.

It's a little more complicated than that.

You buy 1 BTC from me for 60k. Now let's say I want to buy BTC again, but you want to sell it for 120k, so now I buy 0.5 BTC from you for 60k, and if everyone agrees that 120k should be the fair price, we've just bid up the market cap and value of BTC without really increasing the fiat.

Now imagine that with different crypto, stocks, other financial instruments, real estate, etc etc and in different combinations and with margin and derivatives and what not.

> we've just bid up the market cap and value of BTC without really increasing the fiat

If anyone in their chain borrows against their inflated crypto, that creates new fiat.

Depends who you are buying it from and which country they are spending in

I think most of the fiat money spent on crypto goes to miners, who then turn around and pay the electricity bill with it.

In all probability, you’re selling to a crypto trader or bot who then uses those funds to make more crypto trades, so the money is in a sense trapped in crypto markets until someone withdraws it from the exchange. The extent to which this money is being absorbed by crypto can be seen by analyzing exchange flows.

Exactly, without that escape valve, the value of "real" goods would be skyrocketing even more.

Which contribute to a chip shortage making cars more expensive, seemingly pure financial instruments directly causing inflation for everyday people, there is no escape

Oh I figure he's being super sarcastic and saying that all that money went into propping up prices in NFTs and crypto that will at some point show their inherent worth. Maybe I read it wrong compared to all the other commenters

Pretty sure the poster meant "thank god people burn their cash by putting it into crypto and NFT's instead of buying more goods".

This is not even a joke. Crypto has absolutely helped absorb the inflation.

For every person buying crypto there is someone selling.

Yes, but the marginal propensity to consume matters here. If it’s an average person buying Bitcoin from a millionaire (or many such average people), it acts as a liquidity sink (since the millionaire has lower marginal propensity for consumption)

No, there are new ICOs with trillions of coins minted every month. It’s the FED injecting cash into newly minted monthly ‘stable coin’ wallets. Can’t wait to see the documentaries on the overnight millionaires who set up fancy ICO websites during the pandemic :D

No, it hasn’t. As money spirals deeply into inflation, crypto holdings and equities will have to be liquidated so that people have money to live off of. This will only feed into the inflation more. Investments haven’t absorbed inflation. They’ve delayed it slightly.

> No, it hasn’t. ... They’ve delayed it slightly.

So it has, by your own admission. You predict a worse eventual outcome, which is not insightful. When this will all end badly is the question, not if. Rome lasted a good long time playing these games.

You can assume some stickiness on investment decisions. If people end up panic liquidating it would on the one hand deflate crypto on the other indicate lower demand.

If 10000 people buy bitcoin at 60k per coin as an investment and later have to sell at 10k per coin to make ends meet, I somehow doubt that the guy that pocketed the difference will contribute to inflation as much as the 10000 guys trying to put up a meal for tomorrow.

It feels like saying Elon Musk will make make your next stop at the grocer's more expensive, because selling his 10% of shares for $20 billion will contribute to inflation because of all the stuff he's gonna buy with that money.

Unlike most billionaires, we have a fair idea of what he’s going to buy with it: more employee wages in companies like SpaceX

I wonder about the price of real estate in Brownsville though

I don't think Elon has actually spent or loaned any of his own money to Tesla or space x. Maybe in the very early days, but not now.

Reply on news.ycombinator.com